This week, we wrapped up our Monthly Metals Index (MMI) series for the month, including coverage of the renewables sector, stainless steel surcharges and steel demand in China.
Furthermore, MetalMiner’s Stuart Burns delved into supply-side impacts on lead, copper and zinc.
In other economic indicators, U.S. housing starts surged in July — a bright spot in what has been a challenging year for the U.S. economy.
MetalMiner’s metals price landing pages offer some new features and data for carbon steel, aluminum and stainless steel buyers.
Sohrab Darabshaw offered an update on the latest developments in the Indian solar sector.
Want more from MetalMiner? We offer exclusive analyst commentary in our weekly, monthly, or quarterly updates – all metals, no sales fluff. Sign up here.
The MetalMiner metals price landing pages (aluminum, carbon steel and stainless steel) now feature LME three-month prices set against MetalMiner’s forecast track record, in addition to “should-cost” prices.
If you’ve visited MetalMiner recently, you might have noticed some changes to our aluminum, carbon steel and stainless steel price landing pages.
The pages can be found from the homepage’s top menu under “Metal Prices.”
As of this month, visitors to these pages can now find a modified, interactive price chart modeling the LME three-month price against the MetalMiner Monthly Outlook forecast track record and including MetalMiner buy signals.
“The main idea here is to showcase savings we can make for our customers if they use our Monthly Outlook,” said Marcos Briones Alvarez, MetalMiner’s procurement forecasting data analyst.
Particularly in a time of considerable volatility, it’s important to stay abreast of what’s going on in metals markets, from capacity developments to pertinent trade news to price drivers.
In addition, on a weekly basis the pages will feature updated “should-cost” metals prices by grade, width, gauge, etc.
In short, what “should” something — 5052 aluminum sheet, for example — cost?
“Many competitors publish the LME three-month price along with the MW premium,” MetalMiner CEO and Executive Editor Lisa Reisman notes. “Few, if any, publish the conversion adder based upon grade, gauge, width etc. The MetalMiner aluminum should-cost model provides a level of granularity not previously available in the marketplace. In addition, the aluminum model can be used by global market participants vs. only North American companies.”
Carbon steel
Similarly, the new-look carbon steel page also differentiates itself from other offerings.
“All of the published price mechanisms currently available in the market involve the ‘base’ price (e.g., the HRC or the CRC number),” Reisman added. “However, no price index exists to see the total price computed with the base metal, plus all of the adders and extras at the grade level.”
The should-cost metal offers buyers additional granularity in the form of pricing by mill. In short, industrial buying organizations can arm themselves with the necessary knowledge to get the best possible deal (a topic we cover in our dedicated best practice library).
“Moreover, the MetalMiner carbon steel should-cost model allows the buying organization to quickly see which mill charges what price for each adder and extra,” Reisman continued. “So, in addition to providing a total price, the capability allows the buying organization to make a sourcing award decision by mill.”
Stainless steel
Last but not least, the revamped stainless steel page also offers something no one else does.
“There is currently no North American stainless steel price index or mechanism for any buying organization to either: a) negotiate with suppliers or b) establish as a contracting mechanism,” Reisman added.
So what, exactly, makes the MetalMiner stainless steel should-cost model so unique?
“The stainless steel should-cost model provides the buying organization with visibility into all of the elements comprising total cost at the grade level (e.g., 304, 201, 439, etc.),” Reisman said.
Those elements can be broken as such: base price+width/gauge adders+finish+CTL (cut to length)+vinyl adders.
This morning in metals news: the U.S. steel sector’s capacity utilization gained once again last month; iron ore futures made gains; and Tokyo Steel Manufacturing Co is keeping its prices steady.
Want an occasional email from MetalMiner that highlights new content with NO sales ploys?
U.S. steel capacity rises to 61.5%
Continuing the recent theme, the U.S. steel sector posted a steel capacity utilization rate of 61.5% for the week ending Aug. 15, the American Iron and Steel Institute (AISI) reported.
The rate marked an increase from the 60.4% posted the previous week.
Production during the week ending Aug. 15 totaled 1.38 million net tons, up 1.7% from the previous week but down 25.2% year over year.
Iron ore futures gain
Iron ore futures rose Tuesday, powered by expectations of continuing strength in Chinese steel demand, Reuters reported.
The most-traded iron ore contract on the Dalian Commodity Exchange closed up 3.5% at 863 yuan ($124.51) per metric ton.
While Chinese demand has continued to show strength to date, demand elsewhere continues to lag behind. MetalMiner’s Maria Rosa Gobitz covered the steel demand picture in further detail in her Raw Steels MMI report Monday.
With volatile steel markets, knowing which strategy to execute and when can make all the difference between saving and losing money. See how MetalMiner looks at different market scenarios.
In the past few months, Chinese HRC and CRC prices have increased over 20%. Meanwhile, their U.S. counterparts have followed the opposite trend. This is due to weaker U.S. demand and stronger-than-expected Chinese demand.
China produced a record amount of crude steel in July as the government boosted infrastructure spending. In addition, the manufacturing sector rebounded as the government lifted lockdown restrictions.
China produced 93.36 million tons of crude steel in July, up 1.9% higher from June. The July total marked a 9.1% increase from July 2019, according to the National Bureau of Statistics of China.
Most of China’s steel production comes from integrated mills. As a result, iron ore prices continue to increase as China’s demand remains strong.
China continued to increase its iron ore imports. In the first half of 2020, China imported 546.91 million tons of iron ore, or a 9.6% year-over-year increase.
Typically, the U.S. market lags the Chinese market by a month or two. Market watchers should monitor if the U.S. steel market to see if it follows a similar price trend to China in the following months.
U.S. steel market
Another factor contributing to the slow recovery of U.S. steel prices may come down to the rapid recovery of mills’ capability utilization rate.
According to the American Iron and Steel Institute (AISI), the U.S. steel sector’s capacity utilization rate rose to 60.4% for the week ending Aug. 8.
While the rate is lower than the same period in 2019, when it reached 79.1%, the rate has increased steadily over the past few weeks despite low steel demand.
Similarly, steel production increased to 1.35 million tons — up from the previous week but still 26.5% below the same period in 2019.
Nonetheless, the rise of capability utilization rate at mills could mean quite the opposite for scrap.
As U.S. steel production and the capability utilization rate continues to increase, so could demand for scrap. Consequently, scrap prices might increase.
Furthermore, EUROFER anticipated consumption might dip lower in the second quarter due to lockdown measures.
The association expects the construction industry to perform better than other sectors. However, that still means construction output is forecast to decline by 5.3% in 2020. However, EUROFER forecast a 4% increase in 2021.
Meanwhile, Junichi Akagi, general manager of JFE Steel in Japan, said steel demand should pick up throughout the third and fourth quarters. However, Akagi does not expect demand to recover to pre-pandemic levels until March 2021.
The Japan Iron and Steel Federation reported orders of steel from automakers, which represent approximately 20% of steel demand, declined by 58% during the second quarter of 2020.
This makes it clear that these large steel-producing countries do not expect to recover their steel demand until early 2021.
Actual metals prices and trends
The Chinese slab price rose 3.2% month over month to $538.87/mt as of Aug. 1. Meanwhile, the Chinese billet price rose 2.5% to $487.27/mt.
Chinese coking coal increased 9.7% to $289.35/mt.
U.S. three-month HRC fell 1.5% to $518/st. U.S. shredded scrap steel fell 8.1% to $238/st.
This past week’s metals news covered everything from silver price movements to the copper price rise’s slowdown to the reimposition of tariffs on some Canadian aluminum.
We also broke down President Donald Trump’s recent proclamation with respect to reimposing the Section 232 tariff on some Canadian aluminum. MetalMiner’s Stuart Burns delved into the concern expressed by Ontario Premier Doug Ford: could Trump target Canadian steel next?
As our readers know well by now, Trump imposed Section 232 tariffs on imported steel and aluminum of 25% and 10%, respectively, in 2018. During the course of negotiations with Canada and Mexico over the United States-Mexico-Canada Agreement (USMCA) — the successor to NAFTA — the U.S. rescinded the tariffs in May 2019.
Now, at least for unalloyed aluminum from Canada, the tariff is back.
Furthermore, the tariff comes in a time when beverage makers are struggling with an aluminum can shortage.
For the buyers out there, if you are under pressure to generate cost savings in aluminum, steel or anything else, make sure you are following these five best practices.
But the tariff storyline is but one thread in the world of metals.
Before we head into the weekend, let’s take a look back at the week that was:
Demand collapsed in Q1 during the lockdown but has recovered rapidly in Q2, originally for flat-rolled products as manufacturing for household goods and air conditioning as the high summer temperature approached. Automotive, however, remains somewhat depressed. Long product production has seen a later surge as the market stocks up ahead of an anticipated fall infrastructure demand for construction.
China has not imported significant volumes of scrap since a change in regulations in 2017. Levels have been controlled by import quotas. As such, demand has in part been met by importing semis, like rods, from Malaysia and billets from Russia.
But a relaxation of scrap import quotas is expected to drive a surge in scrap imports. The change could boost domestic electric arc furnace (EAF) and induction furnace (IF) producers.
Southeast Asian scrap users wary
Scrap consumers in the rest of Southeast Asia are watching developments with some degree of trepidation.
Those consumers are expecting Chinese scrap demand could drive up the region’s prices and reduce availability. Worst case, this could encourage resource nationalism. Countries could impose a ban or limits on scrap exports to protect domestic availability or cap price rises.
Ultimately, if scrap prices do rise, rebar and billet prices will likely rise. Excess Chinese production would struggle to find a home regionally, with many countries like Vietnam not allowing rebar imports.
Regional production outside of China is not especially robust.
Japan’s Nippon Steel closed six blast furnaces at the start of the pandemic. However, the company is suffering from poor demand (even during H2 2019). While JFE expects to bring its one closed blast furnace back on stream later this year, Nippon has no plans to do the same before 2021 — underlining the continued depressed nature of the market.
Well-managed supply from Australia and anxiety over availability from pandemic-hit Brazil will likely continue to support iron ore prices. As if to support supply constraints — or, maybe, in retaliation for political discourse with Australia — China imported iron ore from a wider range of sources in Q2 and Q3. The most notable import sources were Canada, Ukraine and India, Reuters reported this week.
Increased scrap imports could soften iron ore demand.
But, in reality, the level of substitution is going to be modest.
Analysts are expecting iron ore prices to remain elevated, coming in at least above $100 per ton for the rest of this year.
The rate marked an increase from 59.3% the previous week. Even so, the rate marked a steep decline from the previous year, when it reached 79.1%.
Production for the week ending Aug. 8 totaled 1.35 million net tons, up 2.0% from the previous week. However, production for the week fell 26.5% year over year.
Furthermore, production for the year through Aug. 8 fell 20.1% year over year.
In March 2018, the U.S. initially imposed Section 232 steel and aluminum tariffs. Then, in May 2019, the U.S. rescinded the tariffs for imports from Canada and Mexico.
However, late last week, Trump announced the reimposition of the tariff for some aluminum coming from Canada.
Alcoa told the Post-Gazette the move would “cause unnecessary disruption” and “further distort the market.”
Following President Donald Trump’s reimposition of 10% import tariffs on Canadian aluminum, the U.S.’s northern neighbor is now sweating the possible reimposition of steel tariffs. The U.S. imposed the Section 232 tariffs in 2018. Eventually, the U.S. lifted them following the successful agreement of the United States-Mexico-Canada Agreement (USMCA).
“I hear that they’re going to do tariffs on our steel industry as well,” Ontario Premier Doug Ford is quoted in Bloomberg saying during a press conference in Toronto last week. “There are 40 categories of steel, they’re going to go and tack on a certain percentage — I’m not too sure what percentage it is — onto our steel.”
It is likely the uncertainty of the situation is creating panic north of the border.
Steel mills struggle with low capacity utilization
Capacity utilization on both sides of the border is woefully low.
Producers of steel are suffering from the ongoing pandemic while trying to make up for the impact of lockdowns earlier in the year.
According to the American Iron & Steel Institute, domestic raw steel production was 1.33 million net tons for the week ending Aug. 1. The capability utilization rate reached 59.3% compared to 79.3% in the same period last year. Meanwhile, the rate had reached 58.9% the week prior.
The justification for the reimposition of the aluminum tariffs was the U.S. has suffered a surge in imports of the light metal. Canada, meanwhile, vehemently denies that argument. Canada says imports remain at long-term historical norms.
Imports of steel as a percentage of total imports have risen this year from Canada, according to U.S. import data. June’s is up from 20.2% of total imports last year to 26.6% this year. However, it should be noted that imports last year faced a 25% import tariff. However, the percentage is up sharply from just 16.3% of the total in May.
Comparing month by month holds hazards, as volumes vary. A smoothed average is better and comparing several years is better still. The imposition of tariffs previously would likely have impacted Canadian-sourced metal to some extent.
Canada will no doubt be hoping Trump’s latest move is aimed at domestic politics (in view of the upcoming elections).
But regardless of the election outcome, the move has shaken producers and consumers on both sides of the border. Many of those producers and consumers had assumed the USMCA had settled North American trade policy for the foreseeable future.
The one certainty this year would appear to be volatility and uncertainty.
It was another busy week in the world of metals and metal-using sectors.
Among this week’s major developments were an executive shakeup at Ford, aluminum prices on the rise in China and a U.S. steel sector seeing capacity utilization gains week by week.
